Question:
‘A public issue of equity may reduce the management holding in the company and make it vulnerable to takeover...’
The factor affecting choice of capital structure discussed in the above case is :
‘A public issue of equity may reduce the management holding in the company and make it vulnerable to takeover...’
The factor affecting choice of capital structure discussed in the above case is :
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Issuing more equity can dilute promoter control, making companies vulnerable to takeover.
Updated On: Jul 14, 2025
- Flexibility
- Cost of debt
- Cost of equity
- Control
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The Correct Option is D
Solution and Explanation
Control is an important consideration when choosing a capital structure. Raising funds through equity dilutes the ownership stake of existing shareholders, especially the promoters or management. This can reduce their control over the company and increase the risk of hostile takeovers. In contrast, debt financing does not dilute ownership since it involves borrowing funds that must be repaid with interest. Hence, companies where management wants to retain control often prefer debt over equity despite the financial burden.
textbf{Final Answer:} (D) Control
textbf{Final Answer:} (D) Control
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